Global Corporation distributed property with an $246,000 fair market value and a $135,300 adjusted basis to one of its shareholders. The property was subject to a $74,415 mortgage, which the shareholder assumed. Global has ample E

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Business

Amanda Parks

24 December, 23:32

Global Corporation distributed property with an $246,000 fair market value and a $135,300 adjusted basis to one of its shareholders. The property was subject to a $74,415 mortgage, which the shareholder assumed. Global has ample E

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Cora Washington · Answer 1

The shareholder's dividend income = fair market value - mortgage value = $246,000 - $74,415 = $171,585

The shareholder's basis in the property received = fair market value = $246,000

Explanation:

Even though Global has enough earnings and profits to distribute dividends (it cannot distribute dividends if it didn't make a profit or doesn't have retained earnings), it might not have enough cash available to do so. This way the company is fulfilling its obligations with its shareholder while not using its cash reserves.